AS the DNC Convention cranks up on Monday morning, join Swiss America CEO Craig R. Smith and Mark Weisbrot from the Center for Economic Policy Research live on Monday, July 26th at 10:50am Eastern as they debate the topic of "Bush vs. Kerry Economic/Tax Plans." This is the third time in the last two months that Craig Smith has been asked to defend the Bush policies with someone from the liberal think tank, CERP. It should be entertaining and educational. Read more about this ongoing debate HERE. Link to be updated again later today.

"[A] good moral character is the first essential in a man, and
that the habits contracted at your age are generally indelible,
and your conduct here may stamp your character through life.
It is therefore highly important that you should endeavor not
only to be learned but virtuous."

-George Washington

"But with respect to future debt; would it not be wise and just
for that nation to declare in the constitution they are forming
that neither the legislature, nor the nation itself can validly
contract more debt, than they may pay within their own age,
or within the term of 19 years."

It's a war zone out there...U.S. stocks collapsed one on top of another Friday like doughboys charging into enemy machine-gun fire. Wave after wave of rally attempts failed to advance the major stock market averages, as a hail of sell orders halted every bullish charge in its tracks.

By days end, the wounded greatly outnumbered the able-bodied, as 22 stocks fell for every 8 that advanced. The Dow retreated from the fray with an 88-point loss to 9,962, while the Nasdaq ducked for cover after losing 40 points to 1,849 - the bloodied index's lowest level in nearly 10 months. General Greenspan rallied the troops during his Congressional testimony on Tuesday by declaring the economy safe and sound, but the sorry souls who trusted his reconnaissance quickly found themselves on a kind of financial suicide mission. The Nasdaq composite shot up 50 points in 24 hours as Greenspan was addressing Congress, only to tumble 83 points thereafter. For the week on the whole, the Dow and the Nasdaq both fell 1.8%.

"Microsoft, Amazon.com and Coca-Cola became the latest bellwether companies to post earnings disappointments and cautious outlooks for the remainder of the year," CBS Marketwatch somberly reports. All three stocks suffered steep declines yesterday.

In this market, all news is bad news. Microsoft shares fell nearly a buck after the software giant reported better-than-expected quarterly revenue, but fell short of earnings estimates. The company also forecast higher-than-expected revenue for 2005, but lower earnings than analysts were expecting. Amazon shares fared even worse, tumbling nearly 13% after the Internet icon reported second-quarter earnings and revenue that missed analyst estimates.

As we survey the battlefield and assess the grisly aftermath of the recent clashes between buyers and sellers, we find sellers holding the strategic advantage. For the month to date, the Nasdaq has tumbled a staggering 10%, while the Dow and S&P have both fallen nearly 5%. The July carnage brings the year-to-date losses to more than 7% for the Nasdaq, 4.7% for the Dow and 2.3% for the S&P 500. The intrepid financial foot soldiers who once courageously screamed, "Buy!" are now screaming, "Medic!"...if they are still able to scream at all.

Curiously, gold tumbled in lock-step with the stock market, while the dollar soared. The widespread anxiety on Wall Street failed to stir up demand for gold, as the theoretically precious metal logged a total loss of $16.20 an ounce for the week to $390.50 an ounce. Meanwhile, the dollar soared 3% to $1.212 per euro. Gold, striding into battle girded with the armor of safe-haven status, fared no better than a common stock. In this war zone, nothing is safe from the assault of sellers, not even gold, the Red Cross of investment assets.

But crude oil continues to defy the skeptics by clinging stubbornly to prices above $40 a barrel. Crude futures closed with a 1% gain for the session and the week, as the price rose to $41.71 a barrel. U.S. Treasury securities posted a microscopic loss for the week, as the 10-year Treasury ended the week about where it started, yielding 4.43%.

Interest rates are higher than they were one year ago, but still not high enough to dampen activity in the nation's red-hot housing market. Sales of new and existing homes advanced to record high levels in May.

"[But] as the Fed taps the monetary policy brakes," says Northern Trust economist Asha Bangalore, "the housing market is likely to take a hit...The downward trend of housing starts is offering hints that the housing market boom is shifting to a lower gear...After the sharp increase in home construction in December, housing starts have declined in four out of the first six months of the year...Stay tuned for home sales numbers next week."

So far, the housing market has thrived despite the harrowing conditions in the stock market. Like cigar-smoking generals in a lavish HQ far from the front lines, the housing market has continued to live large, even while the stock market suffers. But this disparity cannot continue indefinitely. Ultimately, the generals of the losing side fare no better than the infantrymen.

If the stock market continues to sustain casualties, the housing market will as well.

WASHINGTON (AP) - The United States government could not protect its citizens from the Sept. 11 terrorist attacks because it failed to appreciate the threat posed by al-Qaida operatives who exploited those lapses to carry out the deadliest assault ever on American soil, the chairman of the Sept. 11 commission said Thursday.

In issuing the panel's final report, commission chairman Tom Kean said none of the government's efforts to thwart a known threat from al-Qaida had "disturbed or even delayed" Osama bin Laden's plot.

"(They) penetrated the defenses of the most powerful nation in the world," Kean said. "They inflicted unbearable trauma on our people, and at the same time they turned international order upside down."

The commission recommended the creation of a new intelligence center and high-level intelligence director to improve the nation's ability to disrupt future terrorist attacks.

The panel appealed for political unity at the heights of America's power, particularly between Democrats and Republicans. The commission's vice chairman, Lee Hamilton, called for "a shift in mind-set and organization" within the U.S. intelligence apparatus, as well as more unity in Congress and a smoother transition between presidencies, to ensure "that this nation does not lower its guard every four or eight years."

"The U.S. government has access to vast amounts of information, but it has a weak process, a weak system of processing and using that information," Hamilton said. "The need to share must replace need to know."

Under this proposal, individuals would be allowed to divert their half (6.2 percentage points) of the payroll tax to individually owned, privately invested accounts. Those who chose to do so would agree to forgo all future accrual of retirement benefits under the traditional Social Security system.

Those who wish to remain in the current Social Security system would remain free to do so.

LAUGH OF THE DAY: SOCIAL SECURITY: A suitcase full of IOUs - Dumb & Dumber

July 22 -- Film critics who saw Dumb and Dumber simply as a mindless comedy completely missed its ground-breaking significance as the first successful exposition of a serious public policy issue in a popular movie format.

The film recounts the adventures of two well-meaning individuals played by Jim Carrey and Jeff Daniels who seek to return a suitcase full of money to its rightful owners. The intensely focused characters carefully account for any money they spend along the way before finally returning the suitcase. The owners are overjoyed to get their money back, until they find their money has been converted to worthless IOUs.

The suitcase full of IOUs is a masterful symbol of the Social Security system.

The way Social Security works is that our elected officials in Washington, DC collect lots of money from lots of people who think their money is going into a big suitcase for their retirement. Instead, all their money is being spent and replaced with Treasury IOUs, which are redeemable only by collecting lots more money from lots more people.

WASHINGTON � Alan Greenspan, chairman of the Federal Reserve Board, said today that the economic recovery appears to be "self-sustaining" but warned that higher inflation could still derail the central bank's goal of raising interest rates slowly.

"We cannot be certain that this benign environment will persist and that there are not more deep-seated forces emerging as a consequence of prolonged monetary accommodation," Mr. Greenspan told the Senate Banking Committee.

In a carefully hedged presentation, Mr. Greenspan veered little from the Fed's basic message when it raised interest rates on June 30 and made it clear that it hopes to keep raising rates at a "measured" pace over the next year.

Mr. Greenspan reiterated his view that recent price increases are mainly the result of "transitory factors," like higher oil prices.

He also expanded on his view that corporate profits have been so high that businesses have ample room to offer higher wages without raising prices to consumers.

But even though consumer prices climbed more slowly in June, and economic growth appears to have cooled in the last two months, Mr. Greenspan gave investors no reason to think that the central bank might go slower than previously thought.

If anything, he stepped up his warning about the uncertainties that surround both the outlook for growth and inflation.

Though very few analysts believe "stagflation" -- a state in which inflation is high, even as economic growth is slow, as it was throughout much of the 1970s -- is in train, Greenspan said policy makers were aware of the risks of stagflation and trying to fight it.

"This is always our concern. Most of us lived through the stagflation of the 1970s. It was a very disconcerting experience," he said in response to a lawmaker's question.

But he added that sharply higher oil prices were the cause of stagflation in the '70s, and noted that current oil prices weren't nearly as high, adjusted for inflation, as they were then.

http://www.nytimes.com

P.S. From Daily Reckoning's Bill Bonner ... - 7-22-04 -- Greenspan's assessment of the U.S. economy was 'upbeat,' says MSNBC. The Fed chief had looked around and said conditions were "quite favorable."

We're glad to hear it; we just don't believe it.

We can look around too. And what we see are people trying
to upgrade their standards of living...while their real
earnings fall.

We see corporations borrowing less money - meaning they are
not intending to build new factories or hire new workers.

And we see the tax refunds petering out, consumer spending
softening and housing starts falling.

What we see is a nation near the end of a quarter-century
of credit expansion. Stocks, once cheap, are now expensive.
Interest rates, once high, are now low. And consumers, once
fearful and loath to spend, are now ready to gamble
everything in order to buy a new house with a big-screen TV
in the family room.

These conditions are quite favorable to something - but not
what Alan Greenspan wants. Not to a boom, in other
words...but a bust.

July 19 (Bloomberg) -- Gold may rise for the second week in three as a decline in the dollar and rising energy prices boost the appeal of precious metals as a hedge against declines in U.S. securities, a Bloomberg survey shows.

Twenty-six of 50 traders, investors and analysts polled in New York, London, Singapore, Beijing, Seoul and other cities on Thursday and Friday advised buying gold. Ten recommended selling, and 14 said they would hold the precious metal.

Gold rose 3.5 percent this month as the dollar dropped to a four-month low against the euro and oil jumped 11 percent to almost $42 a barrel. A drop in the U.S. currency makes dollar- priced metals cheaper in euros. High-cost energy is spurring inflation, which erodes the value of assets such as bonds.

``The two biggest factors affecting gold in the short-term are a weaker dollar and higher oil prices,'' said James Turk, managing director of Channel Islands-based Goldmoney.com, which stores about $24 million of gold for owners in 102 countries. ``We should be looking for higher gasoline prices, which in turn will further raise inflationary concerns.''

Gold for August delivery on Friday rose $2.40 to $406.80 an ounce on the Comex division of the New York Mercantile Exchange, reducing the loss for the week to $1.10, or 0.3 percent.

The dollar fell to a four-month low against the euro on Friday, and crude oil futures in New York rose to $41.90 a barrel, the highest since June 2.

A drop in the dollar and high oil prices may push gold to $413 an ounce this week, said Hans-Guenter Ritter, head of trading at Hanau, Germany-based Heraeus Holding GmbH, which specializes in processing precious metals for industrial use.

International investor demand for U.S. government debt, stocks and other securities in May was the slowest since October, at a net $56.4 billion, the Treasury Department said on Friday. The dollar fell on the report, signaling the U.S. may have difficulty attracting enough capital to finance the nation's debts to holders overseas.

Gold ``remains in an upward trend,'' said Zhenwei Cai, a gold trader at Bank of China in Shanghai.

The amount of money workers receive in their paychecks is failing to keep up with inflation. Though wages should recover if businesses continue to hire, three years of job losses have left a large worker surplus.

"There's too much slack in the labor market to generate any pressure on wage growth,'' said Jared Bernstein, an economist at the Economic Policy Institute, a liberal research institution based in Washington. "We are going to need a much lower unemployment rate.'' He noted that at 5.6 percent, the national unemployment rate is still back at the same level as at the end of the recession in November 2001.

Even though the economy has been adding hundreds of thousands of jobs almost every month this year, stagnant wages could put a dent in the prospects for economic growth, some economists say. If incomes continue to lag behind the increase in prices, it may hinder the ability of ordinary workers to spend money at a healthy clip, undermining one of the pillars of the expansion so far.

Declining wages are likely to play a prominent role in the current presidential campaign. Growing employment has lifted President Bush's job approval ratings on the economy of late. According to the latest New York Times/CBS News poll, in mid-July, 42 percent of those polled approved of the president's handling of the economy, up from 38 percent in mid-March.

Yet Senator John Kerry, the likely Democratic presidential nominee, is pointing to lackluster wages as a telling weakness in the administration's economic track record. ``Americans feel squeezed between prices that are rising and incomes that are not,'' Mark Mellman, a pollster for the campaign, said in a memorandum last month.

WASHINGTON, July 17 - The Central Intelligence Agency has begun a series of terrorism briefings for state and local law enforcement personnel, for the first time dispatching counterterrorism experts to cities and small towns to warn of the possibility of an attack by Al Qaeda this year, government officials said this week.

The C.I.A. briefings, which are being coordinated by the F.B.I., are conducted by intelligence analysts from the agency's Directorate of Intelligence. They have visited small cities and towns across the country, the officials said, with more meetings planned.

Many of the briefers are analysts from the C.I.A.'s Counterterrorism Center at the agency's headquarters at Langley, Va., which sifts through thousands of pieces of information to track terrorists worldwide. Sometimes they have been joined by the C.I.A.'s officers who work in several large cities in the United States, one intelligence official said.

The center started the briefings in recent weeks to advise local authorities about the terror threat as part of an effort "to put some context and flavor into the current threat environment," which government officials have described as the most serious since the months before the Sept. 11 attacks, the intelligence official said.

In part, the briefings are a direct response to rising fears of a Qaeda attack sometime this year and reflect the government's willingness to take previously untried steps to detect and possibly deter an attack. This week, the country's new acting intelligence chief, John E. McLaughlin, was the latest senior administration official to warn that the threat of terrorist attack on the United States is more significant than at any other time since Sept. 11.

CHICAGO, IL (ANS) -- Sixty-four percent of Americans online have used the Internet for religious or spiritual information, according to an April 2004 report from the Pew Internet & American Life Project.

The report found:

->38 percent have sent and received email with spiritual content.

->35 percent have sent or received online greeting cards related to religious holidays.

->17 percent have looked for information about where they could attend religious services.

Lee Rainie, Director of the Pew Internet & American Life Project, will address the findings of this report and others done by Pew during the 2004 Annual Meeting of the Internet Evangelism Coalition September 14-15 in Chicago.
Rainie will discuss who is online, what they do, how they feel about it and what impact it has had on them. He will also describe the three major pieces of research his organization has done on how people use the Internet to get religious and spiritual information, how churches have begun to move their missions and evangelical work online and how private piety has become a part of the email world.

In addition, the focus will be on the Project's findings about how people use the Internet in times of great national stress -- such as after the 9/11 terror attacks and at the dawn of the Iraq War.

No names were named. The commission should be indicted for a conspiracy to delude the American people.

For example, We the People demand to know the name of the Lawyer inside FBI Headquarters who turned down the request from the FBI Field Office in Minneapolis to search Moussaoui's apartment. This terrorist was taking flight lessons in Minneapolis and his actions were picked up by a sharp agent in that region. Yet, the agent's request to investigate further was blocked in Washington. We don't know by whom!

The Whitewash Committee has not released this culprit's name. We now have a government Of the Government, By the Government, and For the Government. It is a dictatorship. We the people do not have any adequate representation at this time.

I support the SWEEPS of ILLEGALS that occurred in California (June 2004)

Both Representative Joe Baca (D-CA) and Vincente Fox are both so outraged.

THIS IS A NATIONAL SECURITY ISSUE, NOT A RACIAL ONE.

Remember September 11th? Remember the Recall of Gray Davis? As a nation,
our security is of the utmost importance. As a state, our economy was
bankrupt. WE, the PEOPLE want to continue to protect ourselves and the
economy of OUR COUNTRY. We do not want outsiders to obtain drivers licenses
or OUR RIGHT to vote.

What privilege is there to be born in this country if they are given away
to others who walk right into it ILLEGALLY?

It is such a slap in the face to those IMMIGRANTS that do stand in line,
fill out the paperwork and study American history to pass the Citizenship
Test. And it is they who learn English; the language of America, not
Spanish.

It is a matter of NATIONAL SECURITY, not racism. It is a matter of our
state�s economy, not racism.

"We are standing on the threshold of a historic event. We are witnessing world history in the making. We are living financial history as no generation before us has. We are on the verge of a historic flight out of paper into tangible assets. This financial flight will reverberate throughout the world. The flight has only just started." -FERNINAND LIPS, "Monetary Pollution" Speech

"THE fundamentals are set for the dream rally on gold bullion to continue as the precious metal continues to outperform other asset classes on the uncertain world stage, resources analysts agree," says Saturday's Courier Mail. They go on to say... "People are going to want their money and there is not enough money behind the US dollar to back it so it is a bit like a return to the gold standard, says UBS resources analyst Shaun Giacomo."

So, what really is going on with gold? No matter what happens, it seems to continue it's climb toward $500. I expect this "dream rally" will have a few bumps along the road, but the trend is set: the world is slowly moving back toward a gold foundation, personally and as individual nations.

Remember: The trade of the decade is gold, according to dozens of respected economists. The trend is your friend IF you have taken a position in gold already. If you have not yet taken action, please consider all of the forces of nature that you are ignoring. Here is an excerpt from a recent article expaining "Why the Gold Standard Now?" ...

While the possibility of the enactment of a legal gold standard is presently remote, gold can nonetheless be used as a standard for your personal economic stability now, today, by anyone. To do so requires no act of Congress, no court decision, no new law of any kind.

Anyone who wishes to adopt gold as his own, personal standard can do so immediately simply by taking a portion of your paper assets and converting them into physical gold assets, which are personally held. It is just that simple, yet only a very small percentage of Americans own any gold at all today. But that could all change overnight.

The fall of the U.S. dollar seems as sure as any forecast that rational people could make given the massive debt and deficits that we are facing in the 21st century. This falling dollar will bring with it a rise in commodity prices. Gold and oil are now linked in the marketplace. Gold is no longer a restraining factor in government policy, but oil is. Gold will follow oil, and oil is in a bull market.

The decision of Arab policy-makers to sell oil for dollars is now under great pressure. I do not expect this policy to survive beyond this decade. When Arabs select another currency, such as the Euro or Gold Dinar, the dollar's monopoly will go the way of all monopolies and the party will be over for Americans, who have been able to buy the world's most crucial commodity with fiat money. Fiat money always goes the way of all flesh. Woe unto the political party whose man is in the White House when this happens.

"If the foundations are destroyed, what shall the righteous do?" -Nehemiah

The greatest minds our our time all agree that there is an absolute correlation between our monetary foundation and our moral/spiritual foundation. That means that, as author/economist RE McMasters once told me in a radio interview, "Government is Religion applied to Economics."

Could it be that the decline in religion, leads to a decline in economics/money, which in turn leads to a decline in government? You be the judge, but it sure appears that way as we look at the last 50+ years of American history.

The bottom line ... is that America is in a moral decline today which, in part, is due to a loss of our religious convictions. My prayer is that WE who hold a deep and abiding faith in God have eyes to see the damage that a humanistic world view has caused and, like Nehemiah, will be empowered by the spirit of God to shout to our fellow countrymen ... "Let us rise up and rebuild this city!" ... one soul at a time ... and financially, one gold coin at a time.

Is there anything new to report in the world of gold investing and international finance/currency movements?

Not really, except maybe for two things:

Many of the things we predicted earlier this year are now coming to pass (i.e., proof that the US economic dead-cat bounce was simply fueled by tax breaks, emergency-level interest rates, and "zero down/zero interest" car deals), and

The threat of deflation, after having been trumped by inflation concerns for a while, is shifting back into full gear. In other words, we are back to the old "two-way-flation" thing again.

Point two is a prime example of what we call "economic flatulence" - the sound made by hot air escaping from a certain bodily orifice, causing it to open and close in rather rapid fashion, emitting a most peculiar and patently ridiculous sound.

This new (or rather renewed) deflationary bias is demonstrated by recent government figures that others have written about in great detail and so need not be restated here. This bias, however, means that any significant near-term Fed rate hikes are simply out of the question - and that means that the dollar's relatively brief interlude of "strength" is over for some time to come. The reason? The very last thing Greenspan wants to do right now is raise rates in any meaningful way.

If any real rate hikes were to occur in the next six months to a year or so, the entire US economic engine would be thrown into reverse. But a failure on the Fed's part to raise rates does not by itself guarantee that the economy will just continue to chug-along as expected, and as so widely predicted.

In truth, whichever way the switch ends up being thrown, forward or reverse, or even if it's left undisturbed, this economy of ours is about to jump out of gear altogether, and that will cause the Fed's money-engine to rev up into the red zone while showing no appreciable effect "on the ground." When that happens, the Fed's money-engine will no longer drive the wheels of this economic vehicle. An added problem lies in the fact that this vehicle is currently trying to go "uphill" (i.e., trying to stage a lasting economic recovery).

What happens when your car jumps out of gear while climbing a steep mountain side? The engine revs like crazy, your car slows down, and then it starts to roll backwards, back down the hill, until you either slam on the brakes and throw it back into gear - or ...

You know what happens then. Now imagine that your car doesn't just jump out of gear, but that your transmission goes completely �kaput' up on that mountain side, with no mechanic shop anywhere in sight. Then what do you do?

Will the Social Security trust fund be there when baby boomers get ready to tap it? With it, Social Security is expected to be able to pay full benefits for another 40 to 50 years. Without it, the system could come up short in just 14 years.

How to fix Social Security is a hot-button issue that many politicians are loath to mention but that eventually will have to be addressed.

Winter Park author Allen Smith has written a scathing book, The Looting of Social Security: How the Government is Draining America's Retirement Account, which was published in January by Carroll and Graff of Avalon Publishing Group in New York. He is critical, not only of the government, but also of the AARP, for failing to raise the alarm.

AARP chief executive William Novelli, on the other hand, takes an optimistic view of Social Security's future, saying the trust fund will be there for baby boomers. We asked both Smith and Novelli four questions about Social Security. Their answers can be found below.

Smith taught economics at Eastern Illinois University for 30 years and is the author of several books on the subject. He holds a bachelor's degree from Ball State University and a master's degree and a doctorate from Indiana University.

Novelli was co-founder of Porter Novelli, one of the world's largest public relations agencies, which he left in 1990 to work in public service. He served as executive vice president of CARE and as president of the Campaign for Tobacco-Free Kids before joining the AARP four years ago. He has bachelor's and master's degrees from the University of Pennsylvania and taught marketing management and health communications a the University of Maryland. The AARP is an advocacy and service group with more than 35-million members age 50 and older.

Q: Is the Social Security trust fund a fraud?

Smith: The concept of the Social Security trust fund is not a fraud, but the looting of the fund by the government is, in my opinion, the greatest fraud ever perpetrated on the American people by their government.

Prior to 1983, Social Security operated on a pay-as-you-go principle with an approximately balanced budget most years. However, in 1982 a presidential commission headed by Alan Greenspan was given the task of studying the long-term solvency of the program and making recommendations for the future. The commission concluded that the only way Social Security would be able to fund the retirement of the baby boom generation, beginning in about 2010, would be to raise taxes and build up a reserve in advance of the retirement. In 1983 Congress passed, and the president signed, the legislation recommended by the Greenspan commission. Taxes were raised and the money was supposed to be specifically earmarked for the funding of the baby boomers' retirement. Approximately $1.5-trillion of surplus Social Security revenue has been generated by the tax increase so far and should be available when the baby boomers retire.

What if the United States has the important questions about Osama bin Laden wrong? Why he's fighting the West, why he's trying to undermine Arab rulers, why he's embraced by millions of Muslims.

That's exactly what has happened, argues a CIA terrorism expert who, at the insistence of the agency, writes under the name "Anonymous." And that mistake dooms the U.S. to endless wars, says the 23-year intelligence veteran, who directed research into bin Laden from 1996 to 1999, in his most recent book, Imperial Hubris.

While the White House says radical Islamists hate the United States for its values and our freedoms, the reality is very different, Anonymous says. Islamists despise our policies in the Middle East. That misunderstanding lures the United States into strategies that benefit al-Qaeda more than the U.S., he says.

Question: You say that we're losing the war on terror. Why?

Answer: We've missed the nature of the threat posed by Osama bin Laden. Presidents Clinton and Bush were both insistent that Osama bin Laden was attacking us because of who we are and what we do. That's about as far from the truth as you can possibly get. My bottom line is that we're never going to win this war if we don't realize what motivates our opponent and try to address it across a spectrum of policies instead of just the military policy, which is basically our only option at the moment.

Q: Is it really that clear cut?

A: Since 1996, bin Laden has been explicit in what he is up to. He is focused on a very limited number of U.S. policies and the way they are perceived in the Middle East.

Q: Why focus on the U.S.? He started out focused on the leadership of his own country, Saudi Arabia.

A: Part of his genius is his focus on the United States. One of the last remnants of European colonialism in the Arab world was a tradition of resistance against national governments. These tyrannies (today's governments) in the Arab world are too strong. There is no way (bin Laden) can ever beat them one at a time. It is too costly in terms of money, lives and families.

He argues that the U.S. is weaker because it's a democracy, because it doesn't like to lose people, because it's so hypersensitive to any kind of opinion around the world that is critical, that if they can drive the Americans out of the region, the rest of it falls like fruit from a tree. The tyrannies in all of the countries go.

Q: What do we know about al-Qaeda?

A: To this day, we don't have a grasp of the size of his organization. We claim that we've killed two-thirds of al-Qaeda's leadership. But what we've done is kill two-thirds of the leadership we knew of on 9/11. We have a body count; we don't have a measure of progress.

Again, we have a semantic problem. Al-Qaeda is not a terrorist group; it's an insurgency that is extraordinarily well structured in terms of succession for leadership. Al-Qaeda loses somebody and within hours, someone who has been an understudy is named to take his place.

Until you have defined what al-Qaeda looks like in terms of organization and have an order of battle, you don't have a gauge against which to measure progress.

Once dubbed the "sick man of Asia" for its anemic showing during the 1980s Asian economic boom, the Philippines has now earned the title "weak man of Asia" - by caving in to terrorist demands in exchange for the release of a Filipino truck driver in Iraq.

By being the first country to pull its troops out of Iraq over a terrorist hostage situation, the Philippines has, in one fell swoop:

� Encouraged terrorists thugs to take more hostages in Iraq - and beyond.
� Emasculated itself at home in the face of a growing Muslim terrorist insurgency.
� Stabbed its ardent counterterrorism supporter and 50-year ally, the United States, in the back.

Manila's desire to secure the safe release of its native son is understandable. But its decision to yield to terrorists' demands - even temporarily - shows that terrorism pays dividends and will encourage its continued use as an evil tool of influence across the globe.

In fact, by bringing its troops home, the Philippines will put other foreign workers in Iraq directly in the terrorist cross hairs. Whose workers will be next?

Manila's show of weakness in Iraq will only make matters worse at home. The Philippines faces a serious terrorist insurgency in its southern Muslim-dominated islands; it has suffered 73 terrorist incidents since 9/11, including 163 deaths and 675 injuries.

The Philippine pullout is small in significance militarily - 51 troops from a multinational force numbering 150,000. But it's huge politically, because it could lead to a chipping away of international resolve in Iraq.

Negotiating with terrorists never pays and the consequences of the Philippines' actions in Iraq will reverberate far and wide. We can only hope that after Spain's abrupt decision to retreat from Iraq this spring, the Philippines will be the last nation to appease these bloodthirsty criminals in Iraq - or anywhere else.

http://www.townhall.com

Peter Brookes, a Heritage Foundation senior fellow, is a former deputy assistant secretary of Defense for Asian and Pacific Affairs. E-mail: peterbrookes@heritage.org

SPECIAL OFFER: RESTORING THE STANDARD: A Tribute to Reaganomics
The only solution to the "monetary pollution" created over the last three decades is a return to the gold standard, according to Swiss banker and author, Ferdinand Lips. Read the text of his latest speech in which he explains in detail to audiences - from Bahrein to Tokyo - that we are on the threshold of a historic "dollar panic" that could incite a "gold panic."

In the tradition of sage Swiss bankers, this Special Edition of Real Money Perspectives will give the reader a peek at the Top Ten reasons why a return to the gold standard must become a major priority -- before the next geopolitical crisis hits or inflation spins out of control.

David M. Bradshaw is Editor of Real Money Perspectives,
publisher of Rediscovering Gold in the 21st Century:
The Complete Guide to the Next Gold Rush (7/01) and
has been an economic commentator since 1987, when he
produced the World Economic Perspectives radio show.
In 1997, he produced a one-hour TV documentary, "Preparing
Wisely for the Next Millennium," which was distributed
free of charge at Blockbuster Video nationally. In 1999, he
produced a one-hour radio special, "The Big Picture: The
Shape of Things to Come" discussing geopolitical,
economic and spiritual trends in the 21st Century.
...MORENOTE: Youngest daughter Braida Zoe (5 months) is learning the importance of wearing a crash helmet -- a valuable habit for us all to remember... just in case!

DISCLAIMER: All of the information in this story is believed to be true,
however errors are possible. Past performance is no guarantee
of future performance. All investments have risk.